Philadelphia Covid-19 Tax Update

Nexus and Apportionment

If a resident of Philadelphia works for an employer with an out-of-city normal workplace and if the employee works from home in Philadelphia solely due to the COVID-19 pandemic, this will not establish nexus for BIRT and NPT purposes.

If a resident of Philadelphia with an out-of-city employment location temporarily works from home in Philadelphia solely because of the COVID-19 pandemic, receipts from services performed in the city will not count as city-sourced for purposes of the gross receipts tax. Conversely, if a non-resident normally works in the city and is temporarily working from home solely because of the COVID-19 pandemic, receipts attributable to these services are to be sourced to the city.

BIRT and NPT Extensions

All taxpayers have a filing and payment extension until July 15.  If a further extension is received from the IRS it applies to city filing, but not payment obligations.

Wage Tax Obligations for Non-Resident Employees

If a non-resident employee is working from home outside of the city solely because of the COVID-19 pandemic, the wages paid for this work from home are not subject to city wage tax.  Employers are not required to withhold city tax on such income.  But, if the payroll system cannot easily accommodate turning withholding on and off, the employer may withhold and the employee could then file for a refund in 2021.  Employers are always required to withhold city tax from the amounts paid to residents of the city.

U&O Clarification

The city’s position is that a business that cannot operate due to the governor’s and mayor’s orders does not have to pay U&O tax. If a restaurant elects to close and not offer take out and delivery, the city will not consider the business to be occupying its space for U&O purposes during the period of closure. The owner can go in to check the mail, make sure everything is secure, water plants, etc. as none of those activities relate to the business which is closed. On the other hand, if a business located in Philadelphia is operating remotely and it has access to its offices, the city considers it to be subject to Use & Occupancy tax.  This is especially the case if there is any kind of employee on the premises, even to get and distribute mail, to maintain computers, to retrieve files, etc.

Several landlords asked if they had to deliver a cash refund U&O tax collected for vacant space or if they could credit the refund to other tenant obligations. The city sees that as a contract matter between the landlord and tenant not involving the city.

You can read the city’s April 24, 2020 policy update here. 

The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.

Author Larry Arem is a partner in the tax practice group at Klehr Harrison.